Medicare spending to snowball to 6% of GDP in next 2 decades, trustees predict

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Dive Brief:

Total Medicare spending is expecting to balloon to 5.9% of gross domestic product by 2038 — up ​from its 2018 level of 3.7% of GDP, according to the new Medicare board of trustees report released Monday.

The Hospital Insurance Trust Fund, which finances Medicare Part A, is forecast to run out by 2026, an estimate the board initially made last year to significant concern from industry and policy stakeholders. Those fund reserves have steadily depleted over the past year, decreasing by $2 billion to a total of $200 billion at the close of 2018.

The outlook is a bit more positive for the Medicare Part B and Part D funds, the Supplementary Medical Insurance Trust Fund. It stood on firm financial footing at the end of last year with a sum $104 billion in assets.

Dive Insight:

As the so-called silver tsunami crests, more than 10,000 Americans age into Medicare every day. By 2030, the percentage of Americans 65 years and older will outnumber those under the age of 18 for the first time in the country's history, according to the U.S. Census Bureau.

Experts worry that federal entitlement programs for older people like Social Security and Medicare won't be able to keep up, especially in light of recent trustee reports. The Social Security trust fund is expected to run dry in 2035, halting the government from paying out old age and disability insurance in full.

Medicare's board of trustees attributed the growing rate of Medicare spend to demographic shifts as more people age into the social insurance program, along with correlated increases in volume and intensity of healthcare services.

Part B and D are forecast to remain more stable than Part A, though Part B and D projected costs are estimated to swell from 2.1% of GDP in 2018 to 3.7% in 2038.

Part B will remain "adequately financed" over the next decade as premium and revenue income are reset every year to factor in any expected cost changes and bolster the reserve for medical insurance costs, according to the report.

Part D spending projections dropped from last year's report due to slower price growth and higher manufacturer rebates.

National health expenditure growth has remained below historical averages since 2008, according to the report, a postponement experts partially chalk up to multiple provisions in the Affordable Care Act that reduced Medicare spend. But the canary in the coal mine has been chirping for a while now — the 2018 trustee's report shortened the timeline for Medicare's reserves running out by three years.

Though the projections aren't set in stone, depending on factors like changes to physician payment update amounts and scientific advances in treatment, they're still cause for concern.

It's "striking" how Congress has ignored the warning signs of runaway spending, Paul Ginsburg, director of the USC-Brookings Schaeffer Initiative for Health Policy told Healthcare Dive, comparing the government to a procrastinating student.

The trustees report itself calls on Congress to work with the executive branch "with a sense of urgency," noting "the sooner solutions are enacted, the more flexible and gradual they can be." But after some bipartisan efforts to curb deficits earlier in the decade, political will has waned to raise taxes or cut spending.

Trump administration HHS Secretary Alex Azar used the report to bash a Democrat-backed public payer expansion popularly termed Medicare for All. Still, the Republican backed tax bill is adding trillions to the deficit.

"Both parties are really at fault," Ginsburg said. "I think it's possible to say, after the next election, maybe in 2021, Congress will grapple with this."

The private sector offered solutions in response to the Medicare Trustees Report as well, with American Hospital Association president and CEO Rick Pollack pushing the provider lobby's goals. In a statement, he called for Congress to tackle rising drug costs for hospitals and long-term structural reforms like additional means testing for high-income beneficiaries, raising the eligibility age and reducing regulatory burden to "shore up the long-term viability of the trust fund."